This is the future for business

A circular economy aims to decouple economic growth from the use of natural resources and ecosystems by using those resources more effectively. It is a driver for innovation in the areas of material-, component- and product-reuse; as well as new business models. In a circular economy, the more effective use of materials enables more value creation, both by cost savings and by developing new markets, or growing existing ones.

When one tugs at a single thing in nature, he finds it attached to the rest of the world.”

John Muir (1838-1914)

Scottish naturalist and preservationist

This phrase, coined by the late Scottish naturalist John Muir, illustrates an interconnected regenerative landscape, where every material produced is a nutrient for something else. It is a fitting description of a new economic model that is fast gaining traction in the business world: the circular economy.

The circular economy works by keeping raw materials and products in productive loops for as long as possible. It aims to design out waste from our industrial systems, making them less dependent on the extraction of finite resource reserves. It will not only enable businesses to tap into new sources of value, but also help forge resilient markets and supply chains cable of delivering long-term sustainable prosperity.

This economic rationale is underpinned by a wealth of research – from The World Economic Forum, Ellen MacArthur Foundation and McKinsey suggests this circular transition represents a $1tn opportunity for the global economy. As such, it presents a significant opportunity for businesses and consumers alike to move away from our traditional linear ‘take, make, and waste’ economy towards a circular model.

Research undertaken by the Waste & Resources Action Program, has identified that circularity could result in an improved trade balance of £90bn across the European Union and the employment of an additional 160,000 people in the materials recovery sector."

Circular business models are designed to be resource-resilient as they involve the physical reallocation or repurposing of old products to serve new demands. Activities such as reuse or remanufacturing not only preserve original material value, but are also less exposed to energy and water risks than traditional manufacture or recycling.

A striking example of this is the iPhone. A recent study has shown that a reused iPhone retains around 48% of its original value whereas it retains just 0.24% of this value as recycled components. Other goods may not demonstrate quite such good returns, but their reuse value is still significantly higher. Reusing a ton of textiles retains 9.6% of the original value compared to recycling (0.4%), while car reuse retains 5.3% of the original value against its recycled parts (1.5%).

A circular economy will boost industrial competitiveness and job creation, both at home and abroad. It will drive greater resource productivity and reduce long-term dependency on virgin raw materials. Research undertaken by the Waste & Resources Action Program (WRAP), has identified that circularity could result in an improved trade balance of £90bn across the European Union and the employment of an additional 160,000 people in the materials recovery sector.

There are also consumer benefits to going circular. The creation of value-added business models will change how we interact with the goods and services we buy. Offering customers access to, rather than ownership of products will result in more affordable sustainable consumption, helping to improve brand reputation and customer loyalty. Those companies that are taking a deeper look at resource use and aren’t afraid to innovate are already starting out on this journey.

Circular design

The role of design in a circular economy is pivotal. Businesses must work with designers to develop new design briefs for products and services that take account of lifecycle thinking. This is likely to involve wider collaboration with key stakeholder groups such as material experts, chemical scientists, manufacturers, and recyclers. The Great Recovery Project proposes four design models that could work under a circular economy: designing for longevity; designing for leasing/service; designing for reuse in manufacture; designing for materials recovery.

The resource-flow systems that underpin these design models will also need to be re-engineered, ideally at the same time. There is no point designing a product for disassembly if the take-back mechanisms aren’t in place to recover those component parts effectively. This will not only require new government policies and market levers to incentivize the designing out of waste, but greater transparency across supply chains so that end-of-life products and materials can be effectively tracked and recaptured. Here are three examples of how design could power more sustainable consumption.

The cradle-to-cradle chair

Office furniture maker Orangebox’s design philosophy is based on using less material to create durable products that are easy to disassemble and recover for remanufacture. Its flagship product is ARA, an office task chair that adheres to cradle-to-cradle principles, effectively creating a closed-loop product cycle.

Virtually all of the materials (98%) used to make the ARA chair are recyclable. Under cradle-to-cradle, each raw material chemical compound has to be assessed to ensure that at end-of-life, it can be taken back into the production cycle to create new high-grade products. These ingredients must also be free of toxins that could cause harm to human health or the environment if released into the atmosphere.

To maximize the value of the materials used in this chair and other products, Orangebox has set up a recycling facility at its manufacturing site in south Wales so it can offer a customer take-back service. Used products are collected by the company’s own delivery fleet – if reuse or refurbishment isn’t possible, they are disassembled and the materials sent on for recycling.

Selective disassembly for fabrics

Wear2 is a textile process technology that allows garments to be selectively disassembled at end-of-life. It allows manufacturers to specify during the design phase which pieces of the garment they would like to separate out in the future, such as zips, labels, buttons, logos or branding. This means such items can be removed from corporate clothing or uniforms so that the garments can be made available for reuse or resell.

A consortium of organizations including C-Tech Innovation, the University of Leeds, Royal Mail Group and textile recycler Oxfam Waste Save, and co-financed by the Technology Strategy Board has developed the technology. It works by utilizing a material that behaves in the same way as conventional yarn, except it loses tensile strength when exposed to microwave radiation. This makes it easy to remove and it leaves no trace on the garment.

According to the developers behind wear2, the lack of effective disassembly technologies and absence of design protocols for handling end-of-life clothing are hindering profitable, sustainable clothing operations. They claim the technology could reprocess a significant amount of the clothing that’s landfilled each year to create new revenue streams for the textiles industry.

Virtually all of the materials (98%) used to make the ARA chair are recyclable."

Build your own smartphone

Phonebloks is a Lego-type smartphone concept, allowing users to replace or upgrade component parts within a modular mobile platform rather than trading it in or discarding it. This means a phone can be customized or personalized from prefabricated parts – using detachable blocks (or bloks) – to help extend its overall life. Each blok is connected to the base of the device for easy interchange. The idea is that as technology evolves, so does the phone in your hand.

According to Phonebloks inventor Dave Hakkens, smartphones are usually thrown out because one of the bloks such as the battery, screen, camera or speed processor has failed or is no longer considered fit-for-purpose. Replacing or upgrading individual bloks therefore offers a more durable solution, especially if users can choose the type and brand of blok they want, or even design their own. The system will be built on an open platform, allowing co-creation between designers, researchers, developers, investors and brands.

Phonebloks has now teamed up with Motorola, a company that has also been involved in its own modular smartphone research, to develop the concept further. It is expected the first prototypes will emerge shortly.

Phonebloks is a Lego-type smartphone concept, allowing users to replace or upgrade component parts within a modular mobile platform."

Repurposing

Repurposing, or upcycling as it is technically known, is a recycling process in which waste products are converted into new materials or products of higher quality and environmental value. Upcycling is considered more of a reuse option, as it doesn’t tend to degrade the original material composition, unlike conventional recycling (or downcycling). Because the technique centers more around material optimization it has found favor with the circular economy movement. Here are three examples of how value is being added to traditional waste streams to transform them into smart materials for other applications.

The fashionable fire hose

Fashion label Elvis & Kresse has built its business model on reclaiming industrial waste products such as decommissioned fire hoses, auction banners and military-grade parachute silk and upcycling them into luxury accessories such as belts, bags and wallets. The company works with institutions such as the fire brigade as well as manufacturers and retailers to take their waste – which is a free source of raw material – and in return, donates 50% of its profits to charity.

Repurposing, or upcycling as it is technically known, is a recycling process in which waste products are converted into new materials or products or higher quality and environmental value.

Most materials are cleaned before being prepared and handcrafted into new products. The fire hoses for instance are polished, exposing a bright red rubber with a nylon core that can be cut, riveted and stitched into belts. Elvis & Kresse’s determination to find a use for niche materials that are not currently recycled has seen it divert around 250 tons of industrial waste material from landfill since it launched in 2007.

The company is now planning to scale up its operations and enter new markets such as home wares. It is also working to minimize waste even further by incorporating the offcuts from its upcycling processes into new products.

Tomato-based car parts

Ford and Heinz are investigating the feasibility of using waste tomato skins as the basis of new composite materials for vehicle parts. Researchers at Ford are testing the durability of tomato fiber to see if it can act as a bio-plastic, which could potentially be used for vehicle wiring brackets and storage bins.

The collaboration could solve an ongoing problem for Heinz as it looks for novel ways to upcycle and repurpose the peels, stems and seeds that are left over from the 2m tons of tomatoes used annually to produce its tomato ketchup brand. Although the research is at an early stage, the technology conversion process has been validated.

The experiment forms part of a wider initiative at Ford to develop sustainable, lightweight plant-based plastic composites to reduce the use of petrochemicals in its manufacturing process. Its bio-based material profile now includes rice hull-filled electrical cowl brackets, soy foam seat cushions, and cellulose fiber-reinforced console components.

From fishing nets to flooring

Discarded fishing nets are being transformed into carpet tiles under a scheme called Net-Works, a collaboration between the Zoological Society of London, Project Seahorse Foundation for Marine Conservation, yarn producer Aquafil and carpet manufacturer Interface. The initiative is not only reducing marine waste, but also providing new sources of income for fisheries in some of the world’s poorest coastal communities.

As fishing nets are made from nylon, they are an ideal material for producing carpet yarn. By salvaging this waste stream, Interface saw an opportunity to create a closed-loop, inclusive business model. It has developed an upcycling process with its yarn supplier Aquafil to take waste nylon – not just from fishing nets, but from used carpet fluff and industrial offcuts – and repurpose it into 100% recycled nylon fiber with the same quality and performance as virgin fiber.

The Net-Works scheme began as an initial pilot in 2012 with four fisheries near Danajon Bank in the Philippines. In the first month, one ton of nets were collected for reprocessing. It has since been expanded to involve more local communities and hopes to scale up further to other regions such as India and West Africa.

The circular economy places an emphasis on the sharing of physical resources through a more collaborative form of consumption where customers pay for the benefit of using a product, rather than owning it outright. Companies will sell usage of their products through leasing or access arrangements allowing them to retain ownership of these goods through the entire lifecycle, extending their performance through maintenance, repair and reuse.

Sharing

Some product categories are more likely to benefit from being a service-based proposition than others. A recent Guardian survey found a majority of business owners (66%) felt technology hardware/equipment offered most value as a product-service model, followed by electronic and electrical equipment (56%) and cars, tires and parts (51%). Interestingly, these three product categories were also singled out by consumers, as being most desirable to access as a service.

Product-service models could take various forms but may include pay per use, renting or sharing, lease ownership, and pooling/multi-access. The following examples illustrate how traditional products are being reinvented as services.

Selling light rather than bulbs

Philips is already selling light as a service – where customers pay for the performance of lumens, measures of light output, rather than the physical hardware of a light bulb or light fitting. The company’s ‘pay per lux’ solution is generating significant energy savings for customers such as the National Union of Students (NUS) and the Washington Metropolitan Area Transit Authority (WMATA).

The NUS offices in London are fitted with Philips LED lighting, which is leased through a flat rate payment scheme. If the NUS exceeds its expected energy usage, it gets cash back from Philips. This creates a financial incentive for Philips to provide the most energy-efficient service possible and in turn, the customer has the advantage of paying no upfront costs and the reassurance of a fixed price contract over a set period – in this case, 15 years.

Philips has also developed a tailored solution for the WMATA by converting more than 13,000 garage lighting fixtures to LED lighting in a move that will reduce energy usage by 68% per year and save 11,000 tons of CO2 emissions. Many cities are prevented from switching to more efficient LEDs due to the upfront costs involved. Again, this scheme carries no upfront cost as it is underpinned by a 10-year performance-based maintenance contract. As a result, it will also save $600,000 in maintenance costs for WMATA.

Philips is now looking to further develop its product service model – if scaled up, such schemes could pave the way for a completely new approach to lighting procurement.

A recent Guardian survey found a majority of business owners felt technology hardware/equipment offered most value as a product-service model."

Would you rent a pair of jeans

Lease A Jeans is a fashion concept introduced by Mud Jeans whereby users can rent a pair of jeans for a year. After that they have the option to keep them, exchange them or send them back. At the end of the lease contract, returned jeans are reprocessed so that all the raw materials and recycled fibers can be remanufactured into new clothes.

The company’s aim is to build a circular fashion industry based on using, instead of owning. During the lease period, users can take advantage of a free repair service and if they eventually opt to keep the jeans, they can still return them for recycling once they are worn out. Mud Jeans is now reclaiming some of the material to make new clothing lines such as hoodies, which can also be hired through its Lease A Fleece scheme.

Recently the company ran an experiment to see how much people would pay for sustainable clothing. Around 800 people were given the chance to place a bid on a pair of Mud Jeans – some were shown the jeans with the sustainable logo and lease contract while others weren’t. The results indicated that people were willing to pay 12% more for leasable fashion over conventional fashion.

The company’s aim is to build a circular fashion industry based on using, instead of owning."

Affordable kitchen hire

Swedish retail giant IKEA is mulling over the idea of leasing kitchens to customers as part of a wider sustainability drive to close the loop on raw materials for its supply chain. It is considering offering affordable kitchens as part of a long-term lease agreement, whereby customers could return the products at end-of-life for reuse or recycling.

Steve Howard, IKEA’s chief sustainability officer, has publicly stated that such a move could pave the way for smarter consumption in the retail sector, where people are less attached to ownership. The company has already launched a ‘Second life for furniture’ campaign in France to encourage customers to bring back used or unwanted furniture to be resold in-store. The initial two-month pilot proved a success and 24 of the 28 stores involved are continuing to offer the service.

Swedish retail giant IKEA is mulling over the idea of leasing kitchens to customer as part of a wider sustainability drive to close the loop on raw materials for its supply chain."

Removing Barriers

The transition towards a circular economy is still very much in its infancy. The whole system that we operate within has to be circular and this means ironing out conflicting issues relating to regulation, collaboration, governance, supply chain dynamics, data transparency, and cultural mindset. One of the most obvious barriers is the lack of product take back schemes and industrial infrastructure to reuse by-products; this issue was considered to be the main stumbling block for achieving circularity by businesses responding to the Guardian survey.

While there is definitely a case for reforming national and international recycling systems to enable more streamlined collection and reprocessing of materials, which in turn could create opportunity for higher value remanufacturing, new value networks must also be established. These value networks, built on intelligent reverse logistics and facilitative product/material asset management, will help support those alternative business models highlighted in the previous sections.

Businesses also don’t feel confident enough to make this change yet – respondents in the Guardian survey cited a lack of knowledge about how to make the transition to a circular economy as the second biggest barrier. Particular concerns around accountancy, financial modeling, marketing and creating value were mooted.

This suggests a strong need to relate the circular economy back to business basics and make it relevant to an organization’s everyday operations. Using the right language for employee engagement and buy-in is crucial; this has been backed up by recent research. The trend toward servitization in manufacturing whereby value-added services are offered alongside products presents a good hook for circular economy education in this sector.

The Guardian survey also highlighted the fact that many businesses feel there isn’t a high enough level of customer demand yet for more circular products, given the fact that these goods are likely to command a premium – at least in the short term. This lack of market pull is a disincentive, and companies must work out how to create desirable brand propositions around this agenda to widen both customer and consumer appeal.

Huge challenges also exist within supply chains, particularly global ones, to coordinate circular material flows and unlock the level of innovation needed to redesign these new systems. A single company may have little influence with its direct suppliers, let alone further upstream or downstream the chain, to start a mutually beneficial dialogue or gather the right types of data needed to assist in this quest.

As the need for innovation grows, companies will increasingly need to look outside of their traditional stakeholder communities and engage with more unconventional groups such as creatives, systems thinkers and futurists.

One of the most powerful enabling tools that will help bring about a circular, restorative economy is a change in mindset – and that comes from education."

What next?

One of the most powerful enabling tools that will help bring about a circular, restorative economy is a change in mindset – and that comes from education. Rethinking our economic models will require not only system reorganization, but also business model redefinition. Manufacturers and retailers, for instance, may have to stop thinking of themselves as purely product makers and sellers, and instead collaborators and deliverers of service-related performance.

On a wider level there will be a need for new skills, especially in the STEM (Science, Technology, Engineering and Math) disciplines. Making the circular economy part of the national curriculum is crucial in delivering this – respected think tanks such as The Aldersgate Group have called for educational reform to enable pupils and students to grasp ‘whole systems’ thinking across design products, technologies, materials and energy flows.

To help address this, the Ellen MacArthur Foundation (EMF) is running a series of educational programs at secondary school and university. It has designed toolkits for teachers and lecturers, encouraging them to teach STEM and creative subjects in a more interlinked way. Last year Bradford University launched the world’s first circular economy masters degree in partnership with the EMF and leading businesses, reflecting growing demand for a more coherent academic framework.

There is also a pressing need for international collaboration among world leaders to help scale up this movement internationally. Governments have a key role to play in coordinating their efforts to ensure that any policy intervention incentivizes circular product and process efficiency. Just as important is to ensure that any region-specific policies are aligned to prevent market failures occurring, especially when materials are traded over long distances.

Positive legislative drivers could include waste prevention targets, incentives for eco-design and industrial symbiosis, and the development of international circular product/service standards. The European Commission’s circular economy framework, the most progressive piece of related legislation so far, makes reference to addressing some of these issues.

As appetite grows among different countries to legislate for a circular economy it’s worth keeping a close eye on the Scottish Government, the Danish Business Authority and the Walloon region of southern Belgium. These three regions are working with the EMF to share international best practice as they look to build capacity and develop new markets circularity.

This content was produced by Guardian Labs, Guardian News and Media’s commercial content division, to an agreed brief with Philips.
Art Imagery by Mandy Barker.